18. Insurance and reinsurance contracts
The Group operates insurance companies mainly in Spain and Latin America (principally in Mexico). The main product offered by our insurance subsidiaries is life insurance to cover the risk of death (risk insurance) and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.
There are two types of saving products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and group insurance, which is taken out by companies to cover their commitments to employees.
The most significant provisions registered by consolidated insurance entities with respect to insurance policies issued by them are set out by their nature in Note 24.
The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are actuarial and financial methods and modeling techniques approved by the country’s regulator or supervisor. Our most important insurance companies are located in Spain and Mexico (which together account for 90% of the insurance activity), where the modeling methods and techniques are reviewed by the insurance authorities in Spain (General Directorate of Insurance) and Mexico (National Insurance and Bonding Commission), respectively. The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are based on IFRS and primarily involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each policy. To ensure this technical interest rate, asset-liability management is carried out, acquiring a portfolio of securities that generate the cash flows needed to cover the payment commitments assumed with our customers.
The table below shows the key assumptions used in the calculation of the mathematical reserves for insurance in Spain and Mexico, respectively:
Download Excel
| MATHEMATICAL RESERVES | Mortality table | Average technical interest type | ||
|---|---|---|---|---|
| Spain | Mexico | Spain | Mexico | |
| Individual life insurance (1) | GKM80/GKM95/ Propias |
Tables of the Comision Nacional De Seguros y Fianzas 2000-individual | 1.9% | 2.5% |
| Group insurance (2) | PERM/F2000NP | Tables of the Comision Nacional De Seguros y Fianzas 2000-grupo | 1-6% | 5.5% |
The table below shows the mathematical reserves (see Note 24) by type of product as of December 31, 2012:
Download Excel
| Technical Reserves by type of insurance product | Millions of Euros |
|---|---|
| 2012 | |
| Mathematical reserves | 7,954 |
| Individual life insurance (1) | 4,777 |
| Savings | 3,993 |
| Risk | 781 |
| Other | 3 |
| Group insurance (2) | 3,177 |
| Savings | 3,086 |
| Risk | 91 |
| Other | - |
| Provision for unpaid claims reported | 553 |
| Provisions for unexpired risks and other provisions | 525 |
| Total | 9,032 |
The table below shows the contribution of each insurance product to the Group’s income net of expenses (see Note 45) in 2012:
Download Excel
| Revenues by type of insurance product | Millions of Euros |
|---|---|
| 2012 | |
| Life insurance | 623 |
| Individual | 434 |
| Savings | 42 |
| Risk | 371 |
| Other | 21 |
| Group insurance | 188 |
| Savings | 11 |
| Risk | 177 |
| Other | - |
| Non-Life insurance | 375 |
| Home insurance | 147 |
| Other non-life insurance products | 228 |
| Total | 997 |
The heading “Reinsurance assets” in the accompanying consolidated balance sheets includes the amounts that the consolidated entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance entities. As of December 31, 2012, 2011 and 2010, the balance is €50 million, €26 million and €28 million, respectively.